Some 7 lakh investors quit capital market in 5 years

The country's capital market is experiencing a incessant decline. Millions of investors are becoming destitute day by day after losing capital. At the same time, as the investors are constantly losing money in the market, they are suffering from cynicism. As a result, nearly 700,000 beneficial owners or BO account holders have left the capital market in the last five years due to a 'crisis of confidence'. This information has been revealed by the Central Depository Bangladesh Limited (CDBL), an institution that stores shares electronically.

Market stakeholders say that the Covid-19 pandemic, the Ukraine-Russia war, the global economic recession, instability in currency exchange rates, overnight policy changes and lack of transparency and accountability have had a negative impact on the country's capital market. Apart from this, investors are also leaving the capital market due to the soaring interest rates and the crisis of confidence. In addition, the BOs that were opened for investment in initial public offering or IPO shares after the introduction of the pro-rata system, have left the market.

According to them, if policy stability and confidence are not restored in the capital market at this time, the crisis will last longer. There is a fear of losing more investors. The full form of IPO is Initial Public Offering. When limited companies offer shares in the primary market to raise capital, the general public and institutional investors apply to purchase those shares. This process is basically IPO.

In the case of IPO, there was once a lottery system. In this method, shares were allocated through a lottery. In 2021, this system was abolished and a system of allocating shares proportionally was introduced. This system is known as pro-rata. However, in this system, before applying for IPO, each investor must have a minimum investment of Tk50,000 in listed securities at market value, i.e. in the secondary market. That is, before applying for an IPO, an investor must have an investment of Tk50,000 in the secondary market. And in the case of non-resident Bangladeshis, the minimum investment must be Tk100,000.

Market stakeholders claim that many BO account holders have left the capital market after the introduction of this system. According to CDBL sources, in October 2020, the total BO accounts, including domestic and foreign (non-resident) investors, were 2,359,950. Of these, domestic BO accounts were 2,211,257. And the number of BOs of non-resident (non-resident Bangladeshi) investors was 148,593. In a span of about four years and 11 months, on November 23, 2024, the BO decreased to 1,679,128. During this period, the BO accounts of domestic investors decreased by 1,614,839.

That is, the domestic BO accounts decreased by 596,418. And the BOs of non-residents decreased by 46,861. Thus, their BO decreased by 101,732. According to DSE data, from January 2020 to October 30, 2024, foreigners bought shares worth Tk9,493 crore. They sold shares worth Tk1,771 crore during the same period. They made a profit of Tk 7,578 crore during this period.

Despite making large profits, those concerned are blaming the crisis of confidence as the reason for foreign investors leaving the capital market. They say that the major reason for foreign investors quiting the market is crisis of confidence. A large part of domestic investors have also left the market due to the increase in interest rates.

Regarding this matter, DSE Director Shakil Rizvi told Views Bangladesh that investors have left the market due to the crisis of confidence and the increase in interest rates. Political instability and fund crisis are also among major reasons for losing investors. Apart from this, the global economic crisis and the decision to impose floor prices (an artificial mechanism to stop the decline of stock prices in a market) have had a negative impact on investors.

Meanwhile, panicking under the pressure of foreign investors selling shares, a section of domestic investors also sold shares. This led to a decline in the stock market for most of 2023-24. As a result, the market capitalization of investors in the stock market decreased by Tk104,291 crore.

It has been found that in the last five years, the entire world economy came to a standstill for the first two years due to the Covid-19 pandemic. However, the country's capital market was on the rise during this time. Then the Russia-Ukraine and Israel-Palestine wars started. This further disrupted the global economy. It had a serious impact on the foreign exchange rate. The dollar suddenly rose from Tk84 to Tk130. Taking this opportunity, foreigners started selling shares and withdrawing profits. It was found that in the first three years of the last five years, i.e. 2020, 2021 and 2022, foreign investors withdrew Tk7,000 crore by selling shares.

In this situation, the country's foreign exchange reserves began to gradually decrease. Allegations of looting in the banking sector and manipulation in the capital market also began to grow stronger. This led to rumors that Bangladesh would go bankrupt. Those rumors further increased the pressure to sell shares, causing a collapse in the market. To prevent a fall in prices, a floor price was imposed on the capital market. With this decision of the regulatory body, foreigners sold shares more quickly and withdrew money.

Regarding the decline in foreign (non-resident) investors, BRAC EPL Chief Executive Officer (CEO) Ahsanur Rahman told Views Bangladesh that foreign investment has been positive since last August. There were many reasons for the decline in investment before. Among them, the global economic recession, exchange rate, and imposition of a floor price are among the reasons. Non-resident investors used to maintain many BOs to buy IPO (initial public offering) shares. Ever since the requirement of Tk50,000 was made mandatory for applying for IPO, these accounts have started to decline.

BRB Securities Chief Executive Officer (CEO) Md. Alamgir Hossain told Views Bangladesh that IPO-hunting BO accounts became inactive at one time due to the new rules. They gradually left the capital market.

Mohammad Rezaul Karim, executive director and spokesperson of the capital market regulator Bangladesh Securities and Exchange Commission (BSEC), said almost the same thing as the reason for the decline in BO accounts. He told Views Bangladesh that at one time, one could apply for IPO only if one had a BO account. After the introduction of the pro-rata system, that opportunity was closed. That is why BO accounts are declining.

However, he said that foreign investors have started coming to the capital market after August 5, and said that they are again turning to the capital market as the value of the dollar is stable.